China and the World of Business • China Business and the World

So Nokia seems to toss up a white flag in its holy wars, agreeing to license Microsoft e-mail and music software for use in some of its phones. Viewed alone, one would see this as a smart move for Nokia. One of the core “challenges” facing the Espooians is that in attempting to own the industry standard at each link in an ever-lengthening value chain, they are in severe danger of both spreading their resources too thin, and of winding up with a bunch of expensively-wrought technologies that, when compared to the competition, are third-rate at best.

I empathize with Nokia, even though I lambaste them, because I understand what it must be like to go from being the dominant handset, base station, software, and technology supplier to an industry to finding one’s entire business model turned on its ear.

The Boys in the Glass House seem to understand that the old vertical model of the mobile telecommunications industry (manufacturer to carrier to subscriber) has gone away, perhaps forever. Their response, however, is to try do do everything. And they can’t – not if they are going to remain a credible supplier to carriers who are desperately trying to reinvent their businesses, and not if they are going to satisfy the needs of an increasingly demanding group of users.

What Nokia needs to do if it hopes to retain its market share leadership, its profits, and indeed to continue to exist is to make some hard choices. It needs to cede significant chunks of the value chain and focus on a few that it can do really well and quite profitably.

This is especially the case in China. One of the reasons the government and industry are paying attention to mobile telecoms now is that they see the horizontalization of the industry as a huge opportunity for not-so-large Chinese enterprises to begin building global businesses in the niches that are opening up as the model matures.

Which brings us back to today’s news – how smart of them to agree to use some Microsoft technology rather than keep trying to reinvent the wheel. One almost sees hope.

Unfortunately, Mary McDowell, head of Nokia’s enterprise division, chimes in and says “It doesn’t mean swords have been turned into plowshares,” meaning that the war with Microsoft will continue on most other fronts.

No, folks, unfortunately for Nokia fans and shareholders everywhere, the Finnish Navel-Gazers are no closer to recognizing the mistakes in their approach to the business now than they were a year ago.